Month: March 2016

A High Growth Bank That Gathers Deposits More Cheaply and Makes More Money Per Dollar Lent

March 16, 2016 by Tobias Carlisle

This month’s Singular Diligence report covers one of the largest banks in Texas.

The bank has lower operating expenses than other banks, a higher efficiency ratio, high gross yields on its loans and low net charge offs. It is able to gather each dollar of deposits more cheaply than other banks. And then it makes more money per dollar of loans it makes because it receives a high yield for these loans while simultaneously charging off a lower than normal amount of each loan each year for its losses.

As a result, it has grown deposits per share 12 percent annually over the last 17 years while maintaining 20-25 percent dividend payout rate

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Yellen Put to the Rescue

March 30, 2016

Markets continued to react Wednesday to Fed Chair Yellen’s speech and Q&A yesterday, which stressed continuing external downside risks to future U.S. growth and the need therefore for a very cautious approach to interest rate tightening. Her comments counterbalance a slew of remarks by other Fed officials in recent weeks that suggested the risks were diminishing and that market may not be pricing in enough rate normalization this year. Every voting FOMC official has an equal vote in policy decisions, but not all committee members exert similar influence. It’s very rare when a policy vote is not consistent with the chair-person’s predisposition.

Share prices today in the Pacific Rim rose 2.8% in China, 1.9% in Singapore, 1.8% in India, 2.3% in Hong Kong and 1.4% in Taiwan. In Japan where the largest on-month decline in industrial production over 59 months was reported, the Nikkei bucked the trend and fell by 1.3%. European stocks show gains of 2.8% in Greece, 1.9% in France, 1.6% in Germany and Britain, 1.5% in Italy and 1.2% in Spain. U.S. equities opened sharply higher.

The dollar lost more ground, falling 1.2% against the kiwi to a 9-month low, 0.6% versus the loonie and Aussie dollar, 0.5% relative to the yuan, 0.3% vis-a-vis the Swiss franc, 0.2% against the euro, and 0.1% relative to the yen and sterling. Emerging market currencies experienced plenty of relief. The Turkish lira touched a 4-month high, the ringgit and won advanced over 1.0% and the ruble and rand were well-bid.

The U.S. 10-year Treasury and British gilt yields rose 3 and 1 basis points. The 10-year German bund is a basis point lower at 0.13%, and the 10-year Japanese JGB is unchanged at minus 0.10%.

West Texas Intermediate oil has risen 1.8% to $38.95, breaking a multi-session string of sharp declines. Comex gold is 0.6% lower at $1,234.22 per troy ounce.

ADP 200K estimate of U.S. private jobs growth in March turned out marginally above street expectations.

German CPI inflation, which had dropped 0.5 percentage points to zero in February, rose more sharply than expected in March to 0.3%, matching the end-2015 figure. Energy deflation increased to an on-year drop of 8.9% from 8.5%, but service sector consumer price inflation climbed 0.7 percentage points to 1.6%. The harmonized CPI rate, which conforms to measurement standards of other EU economies, rose 0.3 percentage points but was still very low at +0.1%. The German data suggest that the ECB might not have to be quite so aggressive in its coming stimulus.

Eurozone economic sentiment fell 0.9 points to a reading in March of 103.0, lowest since February 2015 and down from 106.6 in December. Consumer confidence and industrial confidence also dropped to 13-month lows, while the services sector sentiment and construction posted 8- and 6-month lows. Retail sector sentiment edged up 0.4 points, however, to a 2-month high.

The Asian Development Bank downgraded projected GDP growth in developing Asia by 0.3 percentage points to 5.7% this year and predict a similar pace in 2017. By 2017, the ADP expects growth in India to be 1.5 percentage points greater than that in China.

Japanese industrial production plunged 6.2% in February and was 0.9% lower on average in January-February than last quarter’s mean level. Industrial shipments fell 4.6%, and the ratio of inventories to shipments increased by 0.5%. The data were worse than expected.

Japanese motor vehicle production recorded a third straight on-year drop in February, dropping by 6.9% after declines of 5.8% in January and 2.3% in December.

Building permits in New Zealand jumped 10.8% last month, the biggest February advance in a dozen years

The Chinese consumer confidence index calculated by Westpac and the government jumped 6.1% in March. That was a 6-month high and the second best advance in 22 months.

Portuguese consumer confidence printed at -11.3 for a second straight month in March. That’s up from 014.1 in December. Portuguese business sentiment improved 0.3 points to a reading of 1.0%. Between February 2015 and February 2016, Portuguese retail sales and industrial output went up 3.5% and 1.1%.

Irish retail sales leaped 11.0% in the same 12-month interval. Icelandic CPI inflation slowed to 1.5% in March from 2.2% in February.

In the year to February, Greek producer price deflation deepened to -11.4% from -7.3%, but Austria’s PPI drop of 2.1% was less than posted in January.

Austria’s purchasing managers survey of manufacturers rose 0.9 points to a 5-month high of 52.8 in March.

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Gold Apr Contract (GC, ETF: (GLD)): Despite probing higher after Tuesday’s close, Wednesday’s open gapped down and eventually fell further to 1223.00 support, whose recovery through the close maintains potential for resuming the recovery. Closing back under 1216.50 would instead launch a new downleg.

Crude oil May Contract (CL, ETF: (USO, USL) (UWTI-long, DWTI-short)): Gapping up above 39.05 Wednesday was appropriate for rejecting Tuesday’s non-trending gap down that only hovered at prior lows. Initially extending higher also tested the 39.55 buy signal, but its reaction down filled the gap back down to Tuesday’s 38.35 close.

Silver May Contract (SI, ETF: (SLV)): Closing above Monday’s 15.38 high Wednesday, would have confirmed Tuesday’s recovery of 15.25, but initially probing above 15.40 was retraced back down to and through 15.25. Closing above 15.38 would still target 15.88.

30-year Treasury Jun Contract (US, ETF: (TLT)): Tuesday’s close above both 163-16 and Friday’s 164-10 prior high failed to confirm with a higher close Wednesday. The intraday reaction down to 162-23 recovered 163-16 whose recovery through the close would avoid greeting Friday’s Employment Situation report from a position of weakness.

Eurodollar Mar Contract (EC, ETF: (FXE, UUP)): Extending higher Wednesday not only fulfilled the 1.1335 attraction, but also probed fresh highs up to 1.1391. Having begun the high’s retest from only a relatively shallow pullback, a topping pattern may now form and trigger back under 1.1319.

Natural gas Apr Contract (NG, ETF: (UNG, UNL)): Still firming Wednesday not only confirmed the recovery above 1.85 targeting 1.99, but also greets Thursday’s EIA report from a position of strength likely either to extend sharply higher, or else first absorb an initially negative knee-jerk reaction down.

About the Author

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes “Trading Plan” and more each session at the blog http://IfThenSignals.com.

The day ended with most traders feeling slightly robbed by close. The SPY flew into $206 off the open but found itself on the wrong end of a relationship with Crude. And yet despite the whipsaw action, the flow went silent.

Crude Inventories came in and everyone started jumping ship. Something about higher prices, production, not enough hummers on the road, and prices falling.

In other words, this action out of Crude is here to stay until something outrageous happens.

$Wrap Up$

With the flow dead, there’s not much you can really pull from today. That’s not a big issue if you’ve stayed light and taken each day as a fresh opportunity to steal a few points away from the sharks. For those who have been swinging positions, you’ve got stones.

But even the best trades must eventually come to an end. And there was a lot of closing positions today. Tomorrow’s flow report will likely reflect that as the monkeys burn the midnight oil stripping apart the day’s notifications.

Until then, you probably want to keep your phone handy tonight. Crude is your crazy aunt who shows up on a whim thinking it’s Thanksgiving in June. It’s crazy, unpredictable and progressively getting worse as the year drags on.

American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index jumped 7.2% in February, following a revised 0.3% reduction during January. In February, the index equaled 144 (2000=100), up from 134.3 in January. February’s level is an all-time high.

Compared with February 2015, the SA index was up 8.6%, which was up from January’s 1.1% year-over-year gain.…“While it is nice to see a strong February, I caution everyone not read too much into it,” said ATA Chief Economist Bob Costello. “The strength was mainly due to a weaker than average January, including bad winter storms, thus there was some catch-up going on in February. Normally, fleets report large declines to ATA in February tonnage, in the range of 5.4% to 6.7% over the last three years. So, the small increase this year yielded a big seasonally adjusted gain. If March is strong, then I’ll get more excited.

“I’m still concerned about the elevated inventories throughout the supply chain. Last week, the Census Bureau reported that relative to sales, inventories rose again in January, which is troubling.” he said. “We need those inventories reduced before trucking can count on more consistent, better freight volumes.” emphasis added

Click on graph for larger image.

Here is a long term graph that shows ATA’s For-Hire Truck Tonnage index.

Bank of Israel

March 28, 2016

Israel’s policy interest rate, 0.10% since a 15-basis point cut in February 2015, was again left unchanged after the March monthly meeting of monetary policymakers. In 2011, 2012, 2013 and 2014 the rate was cut three times each year. All the reductions were by 25 basis points. A statement explaining today’s decision noted that expected inflation rose fairly sharply since the February meeting. However, on-year inflation remains negative at -0.2%, growth has moderating, the change in the environment reflects base effects, and the risks to both growth and inflation lie on the downside. The statement suggests that the policy interest rate is likely to stay flat throughout 2016 and to rise about 40 basis points during 2017.